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Title: Japan's Policy Trap: Dollars, Deflation, and the Crisis of Japanese Finance by Akio Mikuni, R. Taggart Murphy, Michael H. Armacost ISBN: 0815702221 Publisher: The Brookings Institution Pub. Date: 01 September, 2002 Format: Hardcover Volumes: 1 List Price(USD): $38.95

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Average Customer Rating: 3.33

Rating: 3
Summary: America's Policy Trap
Comment: Japan has $400 billion in a New York bank. Whose problem is that? People like me wrote checks for Toyotas etc which never got to Japan. If your checkbook shows $400 oustanding is that good or bad? Brookings - a Washington think-tank hired two banker types to solve the puzzle; their book is a bomb. "The Yen is both too strong and too weak."

Banking is not history. The $400 billion is a diplomatic problem - Japan and America have a joint history that explains the $400 billion, where it came from and what inevitably must be done. America is the one in the trap.

To keep Japan from Indonesian oil we sank their fleet. We incinerated innocent city people to get unconditional surrender. We imposed juvenile law, government and banking systems. We put their businessmen in prison and their politicians on the CIA payroll.

As people, we get along very well. We we all eat raw fish now.

Japan's immediate big problem is China. China and Japan have tons of history; the bottom line is that they are emerging with comfortable global joint hegemony. That leaves America trapped out in the cold. If I were Mr. Bookings that's what I would hire brains to write about. (A chart shows Japanese land is wrorth 2,455 TRILLION Yen! How do you pronounce that? Within memory the US dollar has bought between 14.5 Yen and 360 Yen.)

So what's a few New York bucks?

Rating: 2
Summary: Not scholarly enuf; too alarmist; conspiracy minded?
Comment: This book is not up to Brookings Institute standards, perhaps that explains the forward written by the Brookings chief, where he says the books 'conspiracy' theme is interesting, to deflect criticism that the book relies too much on secondary sources.

Basically the premise is old news: Japan runs a current account surplus because it refuses to import and only exports, which creates a weaker than normal yen. The dollar surplus then has to be either invested overseas (hence the Japanese overpay for US investments), or plowed into assets by JP banks to avoid the yen from being strengthened. But that this is part of a 'conspiracy' is not really fleshed out. The book relies too much on secondary sources. And it is not clear to me that the currency imbalance is the root of Japan's ills (this is the central premise of the book). Note that Japan import/exports are only 10% of the GNP, (not unlike the 15% in the US), and thus the lack of demand in JP from the remaining 90% of the GNP is perhaps the real cause of the 10 year recession there. Also other Asian countries do the same thing as JP (namely, keep their currency weaker than it should; ration credit; restrict labor mobility and labor wage rates); how do their economies escape the JP trap of recession? Can it be that other reasons are at fault for JP's demise, such as JP is getting older? These issues are not discussed.

Basically the book is a 20 page white paper made into a several hundred page book, and the tone is too 'alarmist'. The most interesting points are made when discussing politics, and how the Ministry of Trade decides who is going to live or die vis-a-vis the 'walking zombie' companies. Of course the same things happened in the US (credit rationing until the 1970s; bank failures in the late 1980s, where the government decided which banks were to be taken over; and a merchantilist philosophy of keeping the dollar strong, which keeps inflation low in the US but results in the mirror opposite but also dangerous problem as in Japan--current account deficits, or living beyond your means).

Rating: 5
Summary: Manufactured Problems
Comment: Akio Mikuni & R. Taggart Murphy have produced an excellent critical piece on the multiple troubles that Japan now finds itself, as well as realistically outlining how the elites are still very much unaware of the full consequences of their actions, and indeed inaction. This book also raises a number of interesting indepth parallels in Japanese history, illustrating that Japan has been in similar waters before and like the past, cannot adapt and change policy before disaster causes havoc. It is furthermore explained that, like all previous merchantile and/or socialist regimes, Japan's production capacity approach to trade is of little use unless profits and risk management are approached seriously. There is some hope for Japan, but the authors wisely find that Japan's war production approach (which is indeed ancient), coupled with its ministerial fiefdoms (whom act like warlords of old.....and control things like banks and until recently the Japanese equity markets), weak liberal democratic structures, non-guilded unions, and lambish populous, coupled with a mountain sized foreign (US$) currency reserve, {which as they argue convincingly, cannot ever really be swapped for Yen....it would destroy Japan (and cause much angst elsewhere)}, all need fundamental revision. Fundamentally, this book highlights the enigma of Japanese power. It should be read along with books like Cartels of the Mind (Ivan Hall); Japan's Big Bang (Declan Hayes); Dogs and Demons (Alex Kerr);The Enigma of Japanese Power (Karel van Wolferan); and Hirohito and the Making of Modern Japan (Herbert P. Bix). Having lived in Japan for four years, I would highly recommend this book.

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